with Michael Dubis, CFP

How did I do on my investment predictions for 2014?

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It’s very easy for people to make predictions about the future, especially when they don’t look back to see how they did. At the beginning of the year, I wrote a piece titled “Potential investment themes for 2014.” Below is a recap of those themes, along with a report card on how I did.

(Disclaimer: I’m not good at making predictions; the reality is that no one successfully predicts anything on a consistent basis, let alone is able to profit from it. Most folks who are perceived as smart are often just lucky or have said the same thing for five, 10, or 20 years and were finally able to be right. As they say, “Being early is the same as being wrong.” Feel free to agree or disagree and opine intelligently why.)

1. Interest rates may not rise as much as people think, and they may even fall.

A+: I nailed this one. Was I really that smart? No. I just took the other side of the most bearish trade I’ve seen in a long time. Eventually, when everyone is bearish, you run out of sellers.

2. However, as I mentioned last year, as long as interest rates stay low, investors will continue to look for yield and higher returns elsewhere.

A: Again, another big one. Basically, most income-producing investments had an awesome year, and folks continue to go after yield. This was bound to work out if I was right about No. 1. Note that people will dial down or abandon the yield chase if yields on Treasuries start to rise.

3.The U.S. stock markets and other developed stock markets may pull back.

B-: If you measure January to December, I failed on this prediction with respect to the U.S. markets but aced it regarding international markets; although international, emerging, and U.S. markets all pulled back to points of relatively poor returns at one point (fall of this year).

4. The least-loved investments of 2013 may be some of the most-loved by the end of 2014.

C: I’d say I was pretty wrong with regard to the U.S. markets, since they were among the most-loved in 2013 and were again in 2014, and international markets continued to disappoint. That said, Treasuries were not very loved going into 2014, and longer-term Treasuries actually had better returns than U.S. stocks, especially on a risk-adjusted basis.

I mentioned last year that I would never bet the farm on this idea, but in a disciplined, rebalanced, diversified portfolio, you may be able to passively buy some more of these least-loved investments and sell a portion of the most-loved, allowing you to avoid riding with the herd and hopefully enhance your long-term returns. Over time, the herd does a horrible job of enhancing returns.

5. The U.S. will continue to lose its pole position in relation to other countries.

F: It’s safe to say that I was wrong on this one. The dollar is much stronger now, for instance. However, the long-term demographics and astronomically high debt in this country simply do not support the U.S.’s position relative to other countries. I would like to be wrong on this, but we have to face the long-term consequences of our nation’s debt management.

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About This Blog

It is an understatement to say the world has experienced a radical shift in capital markets. There are more layers of information and opinions on the direction of the world than we've seen in decades. The internet and the media do not always make it easier, but Michael Dubis' contribution through IB blogs will help you sift through the noise and give you some perspective. You can find his company online.